But a source from a law firm, who declined to be named, said it was a common and fairly safe practice for others to buy anyway.

“I’ve had plenty of clients who have grown close to me who have told me they’ve bought properties they shouldn’t have," he said. Those clients later sold those properties at a profit, he said.

Most standard contracts have a warranty to which the buyer agrees, saying he or she does not need FIRB approval. A non-compliant buyer could sign it anyway and probably not get caught.

“It’s very difficult for you to get caught," the source said. “We don’t have the resources to sufficiently track buying by foreign residents. I don’t know if there is a procedure in place to do it, quite frankly."

Assistant Treasurer
Nick Sherry
said this month that 50 buyers with overseas addresses had been selected for investigation to ensure they were compliant with the rules.

A Treasury spokesman said the Foreign Acquisitions and Takeovers Act 1975 provided wide-ranging powers to enforce the foreign investment rules. The powers included criminal penalties for the foreign investor, jail and fines.

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But David Sinn, property partner at Freehills law firm, said he did not know what the likely penalty would be, as he had never heard of anyone getting caught. “They don’t confiscate the property from you," he said.

There are also legitimate ways to bypass the regulations. A person could register a company structure and buy property for company staff, as long as an Australian citizen is company director. Rich families obtain prestige property via their student children, or any relative that has a temporary or permanent resident visa. Phil Madden of Maddens Lawyers said: “The whole system needs an overhaul because it can be legally circumvented by legitimate family and company structures."

Real estate agents make anecdotal connections between hyperactive bidding by overseas buyers and changes last March to FIRB rules for foreigners buying local property.

Temporary residents no longer need FIRB approval to buy existing dwellings, but they can buy only one and must live in it. They no longer need to sell if they return overseas, and can buy or speculate on as many new or off-the-plan dwellings as they like. Students are no longer restricted to an upper buying limit of $300,000.

But the FIRB is unable to confirm the effect of these changes. It still collects data on purchases by overseas investors, but no longer on sales to temporary residents.

The last data available is in the FIRB’s 2007-08 annual report, which shows a steady rise in the number of approvals for real estate purchases. The 2007-08 number was 7354, up from 5612 the previous year, which, in turn, was 18 per cent higher than the year before. Of the extra 1657 approvals in 2007-08, 1029 were for existing residential dwellings. The figure of 7354 approvals, or $20.4 billion, is a tiny amount of total property. There were 402,734 home sales in 2008, said RP Data-Rismark.

John McGrath from McGrath Estate Agents said foreign investors accounted for less than 5 per cent of sales in Sydney’s eastern suburbs. Martin North from Fujitsu Consulting said his surveys showed a 3 or 4 per cent rise in purchases by overseas buyers last year, compared with 2007.

The Treasury spokesman said FIRB approvals for temporary residents to buy established houses had stayed between 1.5 and 2 per cent and “there is no evidence that this has changed".

But there are reasons why the March changes could have increased purchases by temporary residents, were the statistics are still being collected. The application process for temporary residents to get approval virtually ruled out bidding at auction. That obstacle has been removed.

Morton & Morton managing director Ewan Morton said: “You had to apply for FIRB approval and wait for the process to take place.

“This doesn’t help an auction where if you are the successful bidder you have to purchase the property and a vendor wouldn’t agree to a clause ‘subject to FIRB’."

Jason Anderson from BIS Shrapnel pointed out that temporary residents who were buying property were likely to be rich. It would take only one or two additional serious bidders on the auction trail to consistently bring higher prices in key markets.

“You only need one or two extra high wealth individuals to step in to push that bidding process along," Mr Anderson said.

The loosening of restrictions on students allows wealthy families to use them as a conduit to buy.

Because temporary residents no longer needed to sell if they returned overseas, real estate agents said it was now common for people to buy and go abroad, with plans to return later.